How to Calculate and Estimate Growth of Your Individual Retirement Account (IRA)

There are so many different retirement investment opportunities out there, it's helpful to be able to make a quick calculation of what a potential investment may grow into. An easy method to do just that is to use the "Rule of 72". It's simple math that is tremendously revealing about investment growth potential.

Difficulty: Easy

Instructions

Things You'll Need:

• calculator or pen and paper
• investment account interest information

1. Identify an account you are interested in investing in, or may already have invested in.

2. Determine the investment's stated interest dividend. For example; a savings account may be paying an annual interest rate of 3.5%. Your current IRA may be paying 8%. You will have to consult your account's documents for this information or a company representative can help you.

3. Now determine what the growth of the account will be in a given number of years. Divide the interest rate into 72. The dividend will be the number of years it will take for the money you have in the account to double. For example: if your IRA is paying 10% interest and you have $5000 in the account. Divide 72 by 10. The dividend is 7.2. It will take 7.2 years for your $5000 to double. 7.2 years from now your account will be worth $10,000 if you don't add anything to the principle and the interest rate remains constant.

4. Use this formula to compare potential or existing accounts. It can help to make your investment decisions and retirement planning.

Tips & Warnings

• Don't overreact to minor rate changes. Markets fluctuate and rates seldom remain constant on most accounts.
• If you move IRA accounts, be aware of penalties and know how to avoid them.
• You can check thousand of potential investments at your local library. Ask the reference section for periodicals such as Value Line Investments or Weisenberger's Investment Guide.
• Interest rates change. If rates change, new calculations are appropriate.
• If you are not comfortable with making your own investments, consult a professional accountant or investment counselor. But be aware of costs. Many of the same investment vehicles a counselor will charge a fee for may be available with no load (fee) by contacting the investment company directly.